APPD Market Report Article

Chennai

August 26, 2022

Dr Samantak Das, Head of Research, India & Sri Lanka

5.1%

INR 73.5

Rents
Rising

Technology and BFSI occupiers are key space takers

  • The increasing trend of returning to the office in recent times and good hiring in the technology sector have had a positive impact on Chennai office market dynamics. IT/ITes and BFSI services continued to be the major demand drivers in the city, together contributing 55% of the demand in the quarter.
  • The gross leasing volume in the quarter recorded 1.5 million sq ft, similar to 1Q22, highlighting the resilience in space demand. Net absorption, however was down by 56% q-o-q with lack of new completions contributing this drop. The SBD OMR and SBD markets had the maximum traction in the quarter, accounting for 84% of the quarterly leasing activity.

No new supply completes in Q2

  • The total stock of office space in Chennai was stagnant at 63.43 million sq ft, with no new completions in the quarter. SBD OMR and SBD markets encompassed 55% of the Grade A stock.
  • The overall vacancy rate in the quarter stood at 9.7%. CBD and SBD OMR had tight vacancy rates of just 1% and 2.8%, respectively.

Rents and capital values show steady growth

  • With demand reviving, developers were optimistic about the office market. This resulted in landlords having greater confidence to quote higher rents, especially in low vacancy submarkets, and even in peripheral locations where some momentum has been observed. Rents were up by 5.4% q-o-q.
  • The market yields remained stable in the quarter with capital values also rising by around 5.3% on an overall basis. Rising insitutional interest is likely to support future capital value growth.

Outlook: Market activity picks up as city emerges from COVID-19

  • The office re-entry rates are expected to increase, likely creating a higher demand for office space. Prominent projects like DLF Downtown, Embassy Splendid Techzone are lined up for completion in next 12 months and have near 100% pre-commitment rates.
  • Vacancy levels are expected to remain stable at around 10%. With healthy demand going forward, there is a positive environment for rents to grow.

Note: Chennai Office refers to Chennai's overall Grade A office market.

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